SAN FRANCISCO (Reuters) - Royal Dutch Shell Plc’s (RDSa.L) decision last week to walk away from its $7 billion drilling effort in the Alaska Arctic could have a negative impact on the state’s already struggling economy, Moody’s said in a note released on Monday.
Although the exploration and drilling would have occurred in federal water and would not have directly contributed to state revenues, the decision to stop the project is still “credit negative” for Alaska, the ratings agency said.
That is because Shell’s efforts to tap the estimated 29 billion barrels of oil and gas would have provided indirect benefits to the state’s economy through job generation and improved economic viability of the underutilized Trans-Alaska Pipeline System, Moody’s said.
Shell’s decision to abandon the project was driven in part by low crude oil prices, which have fallen from their 2014 peak of $107 per barrel in June to approximately $45 currently.
Prolonged low prices have already taken a toll on Alaska, which derives approximately 90 percent of its revenues from oil.
State revenues for fiscal 2015 of $2.3 billion were down 57 percent from $5.4 billion the prior year. The state has been draining about $250 million per month from its substantial reserves to support its fiscal 2016 budget.
“The state will continue to experience large deficits in the coming years if oil prices remain low ... and will again need to use reserve money to fill these gaps,” Moody’s said.
Alaska’s credit rating is AAA-negative.
Reporting by Rory Carroll; Editing by Jonathan Oatis